Finance Ministry revises criteria for recapitalisation of PSU banks

State-owned banks looking forward to the next round of capital infusion will need to fulfill a new set of criteria, including credit recovery, as the Finance Ministry has revised the recapitalisation norms.

The government in July had announced the first round of capital infusion of Rs 22,915 crore for 13 banks. (Reuters)

State-owned banks looking forward to the next round of capital infusion will need to fulfill a new set of criteria, including credit recovery, as the Finance Ministry has revised the recapitalisation norms.

The second tranche of capital allocation for the current fiscal would be based on cost of operations as well as recovery and quality of credit on the basis of risk weighted assets, sources said.

Only those lenders that fulfil the criteria post third quarter (October-December) results of the current fiscal will be eligible for the second round of funding, sources added.

The money was allocated last fiscal on the twin principles of ensuring 7.5 percent Common Equity Tier 1 (CET 1) at the end of the 2016 and growth capital to five major banks.

The government in July had announced the first round of capital infusion of Rs 22,915 crore for 13 banks.

“75 percent of the amount (Rs 22,915 crore)…is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market,” the Finance Ministry had said in a statement.

“The remaining amount, to be released later, will be linked to performance with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations,” it had said.

The first tranche was announced with the objective to enhance their lending operations and enable them to raise more money from the market.

Out of the Rs 22,915 crore, State Bank of India (SBI) was provided Rs 7,575 crore followed by Indian Overseas Bank (Rs 3,101 crore) and Punjab National Bank (Rs 2,816 crore).

The capital infusion exercise for the current fiscal is based on an assessment of need as per the compounded annual growth rate (CAGR) of credit growth for the last five years, banks’ own projections of credit growth and estimates of the potential for growth of each PSB, it had said.

Finance Minister Arun Jaitley in his Budget speech for 2016-17 had proposed to allocate Rs 25,000 crore towards recapitalisation of PSU banks. “If additional capital is required by these banks, we will find the resources for doing so. We stand solidly behind these Banks,” he had said.

In order to minimize the public fund needed for strengthning/recapitalising the PSBs ,there is an urgent need for reduction of NPAs by actual recoveries from all the defaulters of loans of PSBs .The PSBs must make all out efforts involving there members of staff to recover bad loans. In this process ,in order to resurrect image of the PSBs ,the cross selling of third party products by these banks should be minimized as these activities give low revenues but apparently divert the focus of the bankers from their core business . All the banks be encouraged to recover NPAs . PSBs should develop more human resources for appraising high quality loans and for recovery of bad debts.